The 2014 Pirelli Integrated Report (2014 Annual Report) aims to provide all stakeholders with a comprehensive view of the value creation process. The Annual Report shows the company’s financial and sustainability performance, the interaction between the business model, the external scenario and the competitive environment, business strategy, integrated risk management and corporate governance.
The Annual Report has been prepared in accordance with International Financial Reporting Standards in force issued by the International Accounting Standards Board (“IASB”) and endorsed by the European Union, as at December 31, 2014, and the measures issued in implementation of article 9 of Italian Legislative Decree no. 38/2005. The Annual Report has been also prepared in accordance with the Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI-G4 version - Comprehensive option) and taking into account the principles contained in the Integrated Reporting Framework of the International Integrated Reporting Council (IIRC).
The Pirelli business model is inspired by the United Nations Global Compact, by the Stakeholder Engagement principles set out in the AA1000 and by the ISO 26000 Guidelines1. This Model aims to create value for all stakeholders through the interaction between financial, productive, intellectual, human, natural, social and relational capitals.
The financial capital of Pirelli, comprising the financial resources of the company, drives the sustainable management of the other forms of capitals and is, in turn, directly affected by the value created by the them. The management of the business in 2014 has produced cash generation of €312 million (5.2% weight on revenues compared to 3.8% in 2013), a return on investment (ROI) of 22%2, an improvement of two percentage points over 2013.
The productive capital, which includes 19 tyre factories in four continents with a total capacity of 72 million Consumer units and 6.3 million Industrial units, benefits from actions to protect natural capital; in this regard Pirelli during 2014 invested in environmental protection, obtaining, compared to the previous year, a reduction in specific CO2 emissions of 2%, a reduction in water withdrawal of 19%, and an increase in the waste recovery rate of 3%, thus contributing to the achievement of cost efficiencies totaling €92 million
Innovation has always been at the core of Pirelli; in 2014 the group invested €205.5 million in research and development, or 7% of premium revenues and 3.4% of total revenues. These investments contribute to the fueling of the intellectual capital, which includes assets such as patents, copyrights, brands, software etc. Pirelli possesses a globally recognized brand and a portfolio of approximately 5,000 patents on product, process and material-related innovations.
Pirelli’s research and development contributes to the improvement of environmental performance along the entire life cycle of the product, from raw materials to the innovative process, distribution and use until the end of the useful life of the tyre. In this respect, the Green Performance products produced by Pirelli, which combine performance and respect for the environment, represent at the end of 2014 46%3 of total tyre turnover (43% in 2013).
Pirelli social and relational capitals are based on the continuous and transparent dialogue that the company maintains with its stakeholders. This dialogue has led to the materiality mapping of the company, which analyses the expectations of key Pirelli stakeholders on issues relating to sustainable growth (cf. Section “Report on Value Chain Responsible Management”); this mapping is a reference point for the identification of opportunities for improvement and thus the Sustainability Targets.
All the types of capital cited could not evolve without adequate investment in Human Capital, which lies at the heart of the Company. Pirelli constantly invests in training, coming to 8.2 average days per employee as at the end of 2014, as well as in the culture of Occupational Health and Safety, with an injury frequency index which fell by 17.7% in 2014 compared to 2013 and by 71% compared to the 2009 figure, in line with the 2020 target that includes a decrease in the index of 90% compared to the base year 2009.
Merit, rules, ethics and sharing of strong values and clear policies, attention to welfare and diversity are combined with advanced tools to attract and retain the best talents.
In line with the Management Model adopted, sustainability forms part of management long-term incentives.
1 The compliance of the Pirelli Sustainability Model with the principles set out in the AA1000 and ISO26000 Guidelines was audited by a third party once again in 2014: see the SGS Assurance Statement included at the end of this report.
2 Return on Investments without financial assets, before restructuring costs.
3 Data obtained by weighing the value of sales of Green Performance tyre products as a percentage of total Group tyre sales worldwide. Green Performance products identify those tyres that Pirelli produces worldwide and in line with Classes A, B, C of rolling resistance and wet grip according with the labelling parameters required by EU legislation.